here is my take. even though the core rate of inflation seems to be in line and "contained", the inflation problem is worse when you look under the hood. look at gold and oil. that said,although the fed said they are'nt there to bail out financial markets they need to show that they are doing something/ they did that when they lowered the discount rate. the discount rate does not affect inflation but it tells the markets they are watching and care about the current situation. i believe with the horrific jobs numbers we recieved last coupled with the mortgage turmoil that the fed(greenspan) created,they have no choice but to lower the fed funds rate. however,the market see's 50 basis points and i do not. i see 25 basis points and the market will sell off when they do that. i think we are in the eye of the hurricane.
rate cut is already being priced into the dollar drop. Looks like they are pricing in a 50 bp cut, but might be caught off guard if (more likely when) Fed only cuts 25 bp and brings the rate back to where it should have been when they overshot. Added pressure on the Fed tho is the large amt of ARMs about to be reset over the next few weeks. Dollar is going to take out all time low before next week's meeting. One thing to keep an eye on is the price of crude - hit 80 today. The numbers can't keep ignoring the effect of oil and will start to show up in inflation numbers - Fed's focus, not housing affordability. Remember, Bernanke is not Greenspan and he won't be arm twisted like him.
He batter cut rates by 50 basis points or atleast 25 points I suspect there may be a selloff on the fed meeting but the market will rebound huge afterwards anyway. Great buying opp.